As previously reported, the Office of the Comptroller of the Currency (OCC) recently decided to consider applications from financial technology (fintech) companies to become special purpose national banks (SPNBs). In our May webinar, we highlighted the unique factors under consideration when evaluating applications from fintech companies, while offering insights based on ongoing, related litigation and Comptroller Thomas Curry’s resignation earlier this year.1
Last week, Acting Comptroller Keith A. Noreika addressed the Exchequer Club about the current status of the initiative.2 His remarks provided updates on the agency’s Office of Innovation, as well as answered the question most frequently asked of him since becoming Acting Comptroller: “What are your thoughts on granting national bank charters to financial technology companies?”
While unable to discuss the matter in detail due to ongoing litigation by the New York State Department of Financial Services, challenging the OCC’s authority to grant SPNB charters to fintech companies, he did say that he thinks “it is a good idea that deserves the thorough analysis and the careful consideration we are giving it.”3 He noted that the OCC’s authority “clearly includes granting charters to companies engaged in the business of banking,” and “[w]e should be careful to avoid defining banking too narrowly or in a stagnant way that prevents the system from evolving or taking proper and responsible advantage of advances in technology and commerce.”4 While acknowledging that, on principle, “companies that offer banking products and services should be allowed to apply for national bank charters so that they can pursue their businesses on a national scale if they choose, and if they meet the criteria and standards for doing so,” he emphasized that the national charter option “exists alongside other choices that include becoming a state bank or operating as a state-licensed financial service provider, or pursuing some partnership or business combination with existing banks.”
He also observed that the national charter option would help level the playing field in the marketplace, since he believes that the current status quo (fintech companies competing against banks without the oversight and requirements facing national banks and federal savings associations) disadvantages banks, and that companies that provide banking products and services should be regulated and supervised like a bank. Noreika also said that changes in consumer protection and preemption over the last decade, including the Dodd-Frank Act coupled with other statutes and regulatory requirements, mitigate the consumer protection concerns raised about granting national bank charters.
In what he described as a “potential spoiler” to the OCC’s upcoming litigation filings, Noreika stated affirmatively that the OCC believes it has the authority to grant national bank charters to financial technology companies that do not take deposits “in appropriate circumstances.” In particular, he noted that the OCC clarified eligibility for receiving a special purpose national bank charter in a 2003 regulation. This signals that the agency plans to defend this authority vigorously.
Finally, Noreika commented that, at this point, the OCC has not determined whether it will actually accept or act upon applications from nondepository fintech companies for SPNB charters, and it has not received, nor is it evaluating, any such applications from nondepository fintech companies. The OCC remains interested in the subject, however, and will continue to hold discussions with interested companies while the agency evaluates its options. In the interim, companies can continue to seek a national bank charter using other authority under the OCC to charter full-service national banks and federal saving associations, as well as other long-established SPNBs, such as trust banks and banker’s banks. According to Noreika, “[m]any fintech business models may fit well into these long-established categories of special purpose national bank charters.”
In sum, while the OCC has no plans to use the contested regulatory authority for this purpose5, the OCC is clearly interested in using other statutory chartering options to achieve the same result.
1Specifically, Comptroller Curry stepped down on May 5, 2017, and Keith A. Noreika is serving as Acting Comptroller of the Currency. In addition, state regulators have filed lawsuits against the OCC, claiming that the OCC did not have statutory authority for the creation of such a special purpose bank charter and that the decision was arbitrary, capricious, and unconstitutional. State regulators and others also have voiced concerns that the national charter would enable fintech companies to avoid state consumer protection laws. The key issues appear to be what a bank should be for purposes of a national bank charter, and whether the OCC should request specific congressional authorization to grant fintech charters.
2Remarks by Keith A. Noreika, Acting Comptroller of the Currency, before the Exchequer Club, Washington, DC (July 19, 2017) (Noreika July 2017 Fintech Speech), available at https://www.occ.treas.gov/news-issuances/news-releases/2017/nr-occ-2017-82.html .
5 12 CFR 5.20(e)